Concor Result Update
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Container Corporation of India reported quarterly results that were significantly below expectations due to higher rail freight expenses and rebates that reduced margins in the important EXIM business. EXIM revenues grew over the previous year but margins fell sharply due to an inability to fully pass on rail freight cost increases. The analyst downgraded the stock to Reduce based on the weak EXIM performance and concerns about declining market share for Container Corporation in that business over the long run.
Concor Result Update
- 1. 4QFY2010 Result Update April 28, 2010 Container Corporation of India REDUCE CMP Rs1,311 Performance Highlights Target Price Rs1,194 Container Corporation of India’s (Concor) 4QFY2010 results were Investment Period 12 Months significantly below our expectations as higher rail freight expenses and rebates pulled down its Exim performance. Further, it was unable to pass on Stock Info entire hike of haulage charges in 4QFY2010. Consequently, margins of the Sector Logistics Exim business fell by 482bp yoy and 636bp qoq to 22.1% and were the lowest since FY2004. The Domestic business continued to perform well on the Market Cap (Rs cr) 17,034 back of the strong revival in domestic consumption that has picked up the Beta 0.3 slack in EXIM performance. We are downgrading the stock from Neutral to Reduce on account of the weak Exim performance registered in the quarter 52 WK High / Low 1,500/755 under review. Avg. Daily Volume 16,328 Exim performance drags down performance: Concor reported 13.1% yoy and Face Value (Rs) 10 7.5% qoq growth in Revenues to Rs951cr, which was in line with our estimate. The company’s Exim Revenues grew 14.1% yoy and 8.0% qoq to Rs726cr on BSE Sensex 17,380 robust Volume growth of 23.6% at JNPT. Domestic Revenues grew 9.9% yoy Nifty 5,212 and 5.8% qoq to Rs225cr, marginally above our expectation. Overall EBIDTA Margin came in much below our estimate of 28.7% at 23.2%. Margins of the Reuters Code CCRI.BO Exim business fell by 482bp yoy and 636bp qoq to 22.1% on account of higher rail freight expenses, and were the lowest since FY2004. However, Bloomberg Code CCRI@IN Margins of the Domestic Segment were flat yoy and 238bp lower qoq in line Shareholding Pattern (%) with our estimate. Other Income fell by 24.4% yoy to Rs38.3cr on account of lower yield earned on free cash. Consequently, PAT declined 8.2% yoy and Promoters 63.1 13.9% qoq to Rs172.7cr, which was significantly below our estimate of MF/Banks/Indian FIs 10.1 Rs213cr. FII/NRIs/OCBs 25.7 Outlook and Valuation: We revise our FY2011E and FY2012E Earnings estimates by 12.6% and 14.3% respectively, due to the weak Exim Indian Public 1.1 performance in 4QFY2010. During FY2006-10, Concor conceded market Abs. (%) 3m 1yr 3yr share by 630bp to the Private players and Road Segment. The key risk to our recommendation will be Concor maintaining its market share and accelerated Sensex 6.6 58.0 25.0 construction of the dedicated Rail-freight corridor, which could help it wrest market share from the Road Segment. At the current market price, Concor is Concor 8.3 72.4 30.0 trading at 18.6x FY2012E Earnings, which is at the higher end of its historical P/E band, and at 12.8x FY2012E EV/EBITDA. Further, we expect the company’s falling market share to be a drag on its Exim performance. Hence, we downgrade the stock from Neutral to Reduce. Key Financials Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E Net Sales 3,452 3,702 4,003 4,522 % chg 2.6 7.2 8.1 13.0 Net Profit 779.2 778.6 823.0 913.5 % chg 6.1 (0.1) 5.7 11.0 FDEPS (Rs) 59.9 59.9 63.3 70.3 EBITDA Margin (%) 26.8 26.4 26.0 25.3 Param Desai P/E (x) 21.9 21.9 20.7 18.6 Tel: 022 – 4040 3800 Ext: 310 RoE (%) 22.6 19.4 18.1 17.7 E-mail: paramv.desai@angeltrade.com RoCE (%) 18.9 17.4 16.6 16.5 P/BV (x) 4.9 4.3 3.7 3.3 Mihir Salot EV/Sales (x) 4.4 4.1 3.7 3.2 Tel: 022 – 4040 3800 Ext: 307 EV/EBITDA (x) 16.5 15.4 14.3 12.8 E-mail: mihirr.salot@angeltrade.com Source: Company, Angel Research 1 Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
- 2. Concor I 4QFY2010 Result Update Exhibit 1: 4QFY2010 Performance Y/E March (Rs cr) 4QFY2010 4QFY2009 %yoy FY2010 FY2009 %yoy Net Sales 951 841 13.1 3,702 3,452 7.2 Total expenditure 730 618 18.3 2,726 2,526 7.9 Operating Profit 220 223 (1.3) 976 927 5.3 OPM (%) 23.2 26.5 (337bp) 26.4 26.8 (47bp) Depreciation 36 31 16.3 134 120 12.3 Other income 38 51 (24.4) 162 207 (21.9) Profit Before Tax 222 242 (8.4) 1,004 1,014 (1.0) Tax 49 54 (9.0) 225 235 (4.2) Tax rate (%) 22.2 22.3 (14bp) 22.4 23.1 (73bp) Reported PAT 173 188 (8.2) 779 779 (0.1) PAT Margin (%) 18.2 22.4 (422bp) 21.0 22.6 (155bp) EPS (Rs) 15.7 17.2 (8.7) 59.9 60.0 (0.1) Source: Company, Angel Research Pick up in Exim Volumes on low base In 4QFY2010, Concor’s Exim Volumes grew 19.6% yoy as against 23.6% and 25.4% growth at JNPT and major ports, respectively. The higher growth was primarily on account of low base and improving economy. Going forward, we expect Concor to report 10% yoy growth in Exim Volumes over FY2010-12E. Domestic Volumes continued to perform well on account of the strong revival in domestic consumption, which grew 15.8% yoy and 6.7% qoq. Management has indicated the strong momentum to continue in the Domestic Segment. Exhibit 2: Quarterly Volume Growth Trend 40.0 30.0 31.3 20.0 18.8 19.6 15.8 10.0 10.4 (%) 5.2 5.6 1.0 1.9 0.0 (6.6) (5.6) (2.5) (2.6) (10.0) (8.8) (10.3) (17.0) (20.0) 1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 Exim yoy growth Domestic yoy growth Source: Company, Angel Research Lower empties fail to negate Rebate, higher Rail Freight charges Overall EBIDTA Margin came in below our estimate of 28.7% at 23.2%. Margins of the Exim business fell by 482bp yoy and 636bp qoq to 22.1% on account of higher rail freight expenses and rebates given to customer to garner volumes. Rail freight expenses and other expenditure increased 18.1% yoy and 20.5% yoy to Rs557cr and Rs154cr respectively, on account of inability to pass on entire hike and rebates of ~Rs27cr largely provided in 4QFY2010. However, Empties’ running costs during the quarter fell 21% yoy to Rs17.4cr, which aided the Margins to a certain extent. April 28, 2010 2
- 3. Concor I 4QFY2010 Result Update Exhibit 3: Segmental Performance (Rs cr) 3QFY10 4QFY09 4QFY10 %yoy %qoq Revenues 884 841 951 13.1 7.5 EXIM 672 636 726 14.1 8.0 Domestic 213 205 225 9.9 5.8 Volumes-mn TEU 595,525 541,752 643,115 18.7 8.0 EXIM 452,623 410,114 490,681 19.6 8.4 Domestic 142,902 131,638 152,434 15.8 6.7 EBIT 230 204 196 (3.6) (14.7) EXIM 191 171 160 (6.3) (16.1) Domestic 39 33 36 10.9 (7.9) EBIT Margin (%) 26.0 24.2 20.7 (357bp) (538bp) EXIM 28.4 26.9 22.1 (482bp) (636bp) Domestic 18.5 15.9 16.1 15bp (238bp) Realisation/TEU 14,852 15,516 1,4780 (4.7) (0.5) EXIM 14,843 15,507 14,789 (4.6) (0.4) Domestic 14,879 15,542 14,752 (5.1) (0.9) Source: Company Angel Research Deteriorating Exim market share remains a concern Concor is in a commanding position owing to its mammoth infrastructure - 225 rakes and 59 terminals - built over 20 years. The company plans to add another 40-45 rakes and four terminals over FY2010-12E. Currently, the company is the preferred transporter via Rail among the shipping lines on account of being the lowest-cost service provider in the Segment and due to the strategic location of its container depots. However, during FY2006-10, Concor conceded market share by 620bp to 27.4% from its peak of 33.7% to the Road Segment and Private players. Concor was impacted by higher IR tariffs and opening up of Rail containerisation to the Private players in FY2007. Going ahead too, we expect Concor to record further drop in market share to around 25% over the next four-five years on the back of higher haulage charges, which would render it uncompetitive in the FEU Segment, and the Private players would gradually increase their presence. Exhibit 4: Declining Exim Market share Exhibit 5: Declining Operating Margins 8,000 35.0 35 33.7 7,000 32.5 32.1 31.0 32.0 32 31.5 6,000 30.7 29.5 5,000 29.0 29.1 28.2 (000' TEU) 27.4 28.7 29 (%) 4,000 (%) 26.8 3,000 26.0 26.1 26.4 26 2,000 23.0 1,000 23 0 20.0 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 20 Container traffic at major ports (LHS) Concor market share (RHS) FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Source: IPA, Angel Research Source: Company, Angel Research April 28, 2010 3
- 4. Concor I 4QFY2010 Result Update Outlook and Valuation Concor is gradually losing its pricing power in the Exim Segment, which could be at further threat once more Rail-linked ICDs from the Private players come up. We remain bullish on the Container Sector in the long term, which is the core driver of Concor's business. However, higher IR tariffs and opening up of the Container industry to the Private players will impact the company’s market share in the longer term. We also believe that the company’s growth trajectory will be lower than the historical trend. The key risk to our recommendation will be Concor maintaining its market share and accelerated construction of the dedicated Rail-freight corridor, which could help it wrest market share from the Road Segment. Exhibit 6: Revised Estimates Revenue EBIDTA EPS Revenue EBIDTA EPS Particulars (Rs cr) (Rs cr) (Rs) % chg % chg % chg FY11E 4,003 1,041 63.3 (5.8) (11.9) (12.6) FY12E 4,522 1,144 70.3 (6.6) (13.1) (14.3) We have revised downwards our FY2011E and FY2012E Earnings estimates by 12.6% and 14.3% respectively, on account of the weak Exim performance in the quarter under review. Thus, we estimate Concor to post muted Earnings CAGR of 8.3% over FY2010-12E, as against the 17.6% CAGR registered during FY2005-09. At the current market price, Concor is trading at 18.6x FY2012E Earnings, which is at the higher end of its historical P/E band, and at 12.8x FY2012E EV/EBITDA. Hence, we downgrade the stock from Neutral to Reduce, with a Target Price of Rs1,194 (17x FY2012E EPS). Exhibit 7: 1-year forward P/E 25 20 Trading at premium to its five yr average 15 (x) 10 5 0 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 P/E Average Source: Bloomberg, Angel Research April 28, 2010 4
- 5. Concor I 4QFY2010 Result Update Profit & Loss Statement (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Gross sales 3,062 3,364 3,452 3,702 4,003 4,522 Less: Excise duty - - - - - - Net Sales 3,062 3,364 3,452 3,702 4,003 4,522 Other operating income - - - - - - Total operating income 3,062 3,364 3,452 3,702 4,003 4,522 % chg 26.4 9.8 2.6 7.2 8.1 13.0 Total Expenditure 2,171 2,487 2,526 2,726 2,962 3,378 Terminal & other Service Charges 2,033 2,320 2,286 2,462 2,662 3,020 Other Expenses 101 111 157 185 216 262 Personnel 37 56 83 79 84 95 Other - - - - - - EBITDA 891 876 927 976 1,041 1,144 % chg 29.1 (1.6) 5.8 5.3 6.6 9.9 (% of Net Sales) 29.1 26.1 26.8 26.4 26.0 25.3 Depreciation& Amortisation 93.7 108.6 119.5 134.3 144.9 148.4 EBIT 797 768 807 842 896 996 % chg 29.8 (3.7) 5.1 4.3 6.4 11.1 (% of Net Sales) 26.0 22.8 23.4 22.7 22.4 22.0 Interest & other Charges - 3 4 - - - Other Income 85 165 211 162 166 183 (% of PBT) 9.6 17.8 20.8 16.1 15.6 15.5 Recurring PBT 882 930 1,014 1,004 1,062 1,179 % chg 31.6 5.5 9.0 (1.0) 5.8 11.0 Extraordinary Expense/(Inc.) - - - - - - PBT (reported) 882 930 1,014 1,004 1,062 1,179 Tax 186 198 235 225 239 265 (% of PBT) 21.1 21.3 23.1 22.4 22.5 22.5 PAT (reported) 696 732 779 779 823 913 Tax Adjustments of prior period 8.1 1.9 (0.5) - - - Minority Interest - - - - - - Prior period items (0.4) (0.2) 0.2 - - - PAT after MI (reported) 696 732 779 779 823 913 ADJ. PAT 704 734 779 779 823 913 % chg 33.8 4.3 6.1 (0.1) 5.7 11.0 (% of Net Sales) 23.0 21.8 22.6 21.0 20.6 20.2 Basic EPS (Rs) 108 56 60 60 63 70 Fully Diluted EPS (Rs) 54 56 60 60 63 70 % chg 33.8 4.3 6.1 (0.1) 5.7 11.0 April 28, 2010 5
- 6. Concor I 4QFY2010 Result Update Balance Sheet (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E SOURCES OF FUNDS Equity Share Capital 65 130 130 130 130 130 Preference Capital - - - - - - Reserves& Surplus 2,565 3,036 3,602 4,159 4,734 5,374 Shareholders Funds 2,630 3,166 3,732 4,289 4,864 5,504 Minority Interest - - - - - - Total Loans 30 50 49 49 49 49 Deferred Tax Liability 161 174 194 194 194 194 Total Liabilities 2,821 3,390 3,974 4,531 5,107 5,746 APPLICATION OF FUNDS Gross Block 2,025 2,327 2,722 3,122 3,622 4,122 Less: Acc. Depreciation 474 581 698 832 977 1,125 Net Block 1,552 1,746 2,025 2,290 2,645 2,997 Capital Work-in-Progress 257 172 246 246 246 246 Goodwill - - - - - - Investments 97 120 168 168 168 168 Current Assets 1,384 1,900 2,159 2,401 2,652 2,985 Cash 1,078 1,523 1,767 2,004 2,210 2,500 Loans & Advances 271 282 276 292 322 371 Other 36 95 116 105 119 113 Current Liab. & Prov. 468 549 623 573 605 649 Net Current Assets 916 1,351 1,536 1,827 2,047 2,335 Misc. Exp. not written off 0 0 0 0 0 0 Total Assets 2,821 3,390 3,974 4,531 5,107 5,746 Cash Flow Statement (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Profit before tax 882 930 1,014 1,004 1,062 1,179 Depreciation 94 109 120 134 145 148 Change in Working Capital 73 (14) 39 (43) (27) (11) Less: Other Adjustments (70) (136) (175) - - - Direct taxes paid (225) (191) (204) (225) (239) (265) Cash Flow from Operations 753 697 793 870 941 1,051 (Inc.)/ Dec. in Fixed Assets (234) (303) (388) (400) (500) (500) (Inc)./ Dec. in Investments (2) (24) (48) - - - (Inc)./ Dec. in loans and advances (91) 85 (74) - - - Other income 72 139 172 - - - Cash Flow from Investing (256) (102) (338) (400) (500) (500) Issue of Equity - - - - - - Inc./(Dec). in loans 30 20 (2) - - - Dividend Paid (Incl. Tax) (141) (167) (205) (232) (235) (261) Others - (3) (4) - - - Cash Flow from Financing (111) (150) (211) (232) (235) (261) Inc./(Dec.) in Cash 386 445 244 237 206 290 Opening Cash balances 691 1,078 1,523 1,767 2,004 2,210 Closing Cash balances 1,078 1,523 1,767 2,004 2,210 2,500 April 28, 2010 6
- 7. Concor I 4QFY2010 Result Update Key Ratios Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Valuation Ratio (x) P/E (on FDEPS) 24.2 23.2 21.9 21.9 20.7 18.6 P/CEPS 21.1 19.9 18.5 18.7 17.6 16.0 P/BV 7.2 5.9 4.9 4.2 3.7 3.3 Dividend yield (%) 6.5 5.4 4.6 4.0 3.5 3.1 EV/Sales 5.2 4.6 4.4 4.1 3.7 3.2 EV/EBITDA 17.9 17.8 16.5 15.4 14.3 12.7 EV / Total Assets 4.9 3.9 3.3 3.0 2.6 2.3 Per Share Data (Rs) EPS (Basic) 108.3 56.5 59.9 59.9 63.3 70.3 EPS (fully diluted) 54.1 56.5 59.9 59.9 63.3 70.3 Cash EPS 62.1 65.7 70.7 70.2 74.5 81.7 DPS 11.0 13.0 14.0 17.0 19.0 21.0 Book Value 202.3 243.5 287.1 330.0 374.2 423.4 Dupont Analysis EBIT margin 26.0 22.8 23.4 22.7 22.4 22.0 Tax retention ratio 0.8 0.8 0.8 0.8 0.8 0.8 Asset turnover (x) 1.5 1.5 1.3 1.2 1.2 1.2 ROIC (Post-tax) 30.7 26.1 23.7 22.0 21.0 20.9 Cost of Debt (Post Tax) - 0.0 0.1 - - - Leverage (x) (0.3) (0.4) (0.4) (0.4) (0.4) (0.4) Operating ROE 20.4 15.7 13.6 12.6 12.1 12.1 Returns (%) ROCE (Pre-tax) 27.1 21.2 18.9 17.4 16.6 16.4 Angel ROIC (Pre-tax) 43.4 36.6 33.4 31.0 29.3 28.8 ROE 29.8 25.3 22.6 19.4 18.0 17.6 Turnover ratios (x) Asset Turnover (Gross Block) 1.6 1.5 1.4 1.3 1.2 1.2 Inventory / Sales (days) 0.6 1.1 1.8 1.8 1.7 1.7 Receivables (days) 1.1 1.4 2.0 1.5 1.5 1.5 Payables (days) 56.7 59.0 65.7 62.1 55.9 51.7 Working capital cycle (ex-cash) (days) (18.5) (18.1) (21.2) (20.1) (15.5) (13.2) Solvency ratios (x) Net debt to equity (0.4) (0.5) (0.5) (0.5) (0.4) (0.4) Net debt to EBITDA (1.2) (1.7) (1.9) (2.0) (2.1) (2.1) Interest Coverage (EBIT / Int.) - 301.1 191.3 - - - April 28, 2010 7
- 8. Concor I 4QFY2010 Result Update Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited nor its directors, employees and affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Disclosure of Interest Statement Container Corporation of India 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies’ Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies. Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800 Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 April 28, 2010 8